Study: No link between hospital quality, charity, and executive pay

July 3, 2012

A study by the New Hampshire Center for Public Policy Studies found little connection between hospital executive compensation and performance, Modern Healthcare reports.

The study analyzed salary information and data from New Hampshire's 23 non-profit hospitals. The state's Attorney General Michael Delany requested the report in 2010 in response to concerns over excessive CEO salaries in New Hampshire, which rose by about 18% between 2006 and 2009.

The study found large variation between executive salaries, which ranged from $150,000 to $1.1 million; and salary changes, which decreased for some and increased as high as 50% for others. On average, New England hospital leaders realized nearly a 30% pay raise from 2006 to 2009, putting New Hampshire's executives in the middle of the pack.

Nearly all of New Hampshire's non-profit hospitals follow IRS protocol for determining executive compensation, although there were some difficulties in documenting meetings in which members discussed compensation and in setting salaries based on appropriate data.

The report suggests that New Hampshire hospitals succumb to log-rolling when establishing executive pay, as they rely on the 75th percentile as a compensation benchmark. According to the attorney general's office, "this creates an upward spiral and executive compensation can grow at a rate disproportionate to relevant measures of achievement… even during significant economic downturn."

Lack of correlation between executive salaries and charity or quality

The report did not find a correlation between executive salaries and either quality of care, charitable care, or how much patients are charged. Delaney says this is a concern because these 23 hospitals must provide charitable care and community benefits in order to maintain their non-profit status.

Resorting to log-rolling rather than linking performance to pay could explain the lack of a connection between these important metrics and executive salaries. Alternatively, the report's performance criteria may not align with the hospitals' criteria (Selvam, Modern Healthcare, 7/2 [subscription required]; Ramer, Bloomberg Businessweek, 7/2).

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